What's going on?
Rocket Internet, the big European tech investor, announced on Friday that it was making a profit after sales at some of its big-name startups rose significantly in the first nine months of the year. Blast off!
What does this mean?
While most of Rocket’s investments are unprofitable, some of its earliest bets are finally starting to pay off. It seems people like their grocery shopping done for them: sales at HelloFresh, the meal-kit delivery service, soared 41% to more than $1 billion. Revenue also grew 66% at African e-commerce platform Jumia, which appears to have cracked a market where postal systems are unreliable and customers prefer to pay for goods on delivery. Overall, Rocket steered from a loss of $51 million last year to a profit of $337 million.
Why should I care?
For markets: Risky bets reap rewards.
Rocket’s unusual for a publicly traded company. Its investors are backing a business with little revenue and profit of its own – instead, they’re counting on its ability to make savvy bets on startups. If these end up (eventually) generating profits, or else get listed on the stock market as companies in their own right (as may soon happen to Jumia), then Rocket’s investors hope to be rewarded with a rising share price and dividends – although neither of these are happening just yet. It’s a long way to the moon…
The bigger picture: Famine before the feast.
E-commerce isn’t always a sure thing. Subscription businesses can be a tough gig – as HelloFresh’s rival Blue Apron discovered earlier this year. Consumers don’t tend to care who makes a delivery, as long as it’s on time and they get what they paid for. If several competing subscription businesses nail the same basics, they then rely on marketing to win customers – which can get expensive fast, weighing on profits. Rocket’s Delivery Hero, for example, faces big competition from Takeaway.com, Deliveroo, and UberEats in Germany – and there are only so many hungry customers out there.